The Internet of Things Will Thrive On Energy Efficiency

Among the Internet of Things' most important functions will be to help individuals, communities and cities become smarter energy consumers.

by Owen Poindexter - Contributing Writer
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July 28, 2014

When Google purchased Nest in January for $3.2 billion, many hailed it as a sign of the arrival of Internet of Things (IoT). Nest is best known for its smart thermostat, a device that knows whether or not you are at home and which can be controlled with a smartphone. Such devices are central to the Internet of Things – a hyper-connected environment in which all of our things become more responsive, dynamic, and – in the case of Nest – capable of chipping away at the excesses of our energy-intensive lifestyle.

The Internet of Things is at a point in its evolution similar to that of the Internet of twenty years ago: full of promise and potential but still a conceptual leap for most people. And a new crop of hopeful startups are popping up, seeking to stake their claim on a potentially huge future market.

Meanwhile, the beginnings of something much larger is taking place – using the Internet of Things to make our cities dynamic and responsive to energy demands and sudden energy spikes. When consumer-level products can interact meaningfully with city-level concerns, the entire system can optimize energy use in a way that wasn’t previously feasible.

Energy efficiency presently tends to trail novelty in gauging the appeal of Internet of Things devices. Nest and other smart thermostat companies, such as the Germany-based tado°, will certainly mention energy reductions, but the larger sell is around how they can make your life more comfortable without you having to do anything. But once consumers start witnessing significantly lower energy bills, novelty quickly morphs into practicality.

The key to the efficiency-enhancing power of the Internet of Things lies in peak usage periods. Electricity is much more expensive in the hours that everyone is using a lot of it.

“For a long time we’ve had these really dumb meters,” explained Lucas Davis, an associate professor at Haas School of Business at UC Berkeley, “so that customers got charged for total consumption during the month. That’s really crude, because the value of electricity varies massively. If it’s 3pm on a hot day, the cost of electricity can be four times what it is at 2am on a Tuesday.”

Large energy consumers (stadiums, factories, etc.) are generally charged for their energy on a dynamic pricing model, which reflects the varying costs of power, but homes in the U.S. still mostly get charged solely on how much power they use. This baked-in inefficiency costs both the utilities and the average consumer, but there is little momentum to change. The consumer is shielded from the spikes of peak usage periods, and the utility companies generally don’t mind absorbing the extra costs (which they can factor back in to their prices), to avoid the inevitable protests when energy bills quadruple in the hottest part of the year.

“If people would just use a little bit less, that would be great for society,” said Davis, “because it would mean we would have to build fewer power plants. We build a lot of power plants that basically only get used five hot summer afternoons a year. Let’s not build those. Let’s use prices, it would be much more efficient.”

The standard American home offers a handful of obvious targets for smarter energy use.

“I should have a thermostat that just knows about those critical peak days and knows to turn off my air conditioner at those hours,” said Davis. “I should have a clothes washer and a dryer that can time running for low price periods.”

“There’s really five or so devices that control a majority of the energy consumption [in the home],” said Nate Williams of Greenwave Systems, an Irvine, Calif.-based Internet of Things software and services provider. Heating and cooling systems, clothes washers and dryers, refrigerators, dishwashers and ovens (and pool pumps, for those fortunate enough to need one), make up the bulk of home energy use. There are tremendous potential savings in simply adding flexibility to when some of these devices are used.

“Once you give [the devices] some direction, you can sort of set it and forget it,” Williams said.

The idea of a smart washing machine that communicates with the city’s electrical grid may seem of dubious value but an avalanche of similarly connected products are on the horizon. Certain gradual advancements, namely ubiquitous Wi-Fi and the proliferation of smart phones, have created a fertile ecosystem for IoT devices, and with one major purchase, Google announced to the world that the Internet of Things was open for business.

“One of the big and most iconic events was the Google Nest acquisition,” said Michael Wolf, founder of Next Market Insights, a consumer technology research firm. “That raised a couple of eyebrows. I noticed a substantial increase in people…getting more active and trying to pitch their own product. I definitely think there’s a lot of investor interest and venture interest as well.”

The news created the needed proof of concept for both investors and entrepreneurs to dive into the market.

“It made hardware less scary to investors, which just brings more capital into the area,” explained Zach Supalla of Spark, a company that creates hardware and software to support IoT products. “You combine Nest’s $3.2 billion with Oculus Rift’s $2 billion—it’s becoming a lot easier now for a VC to throw down a couple million on a hardware product, whereas two or three years ago, that was completely unheard of.”

With cash flowing in to the Internet of Things space, more and more startups are jumping in. Responsive lights and sprinkler systems are on the leading edge while other companies are based around entirely new products. Niwa, for instance, creates a self-contained, automated home gardening system. The possibility of the IoT democratizing food production shows the game-changing potential of smart, responsive tech across any number of sectors.

While trimming home energy use can bring substantial energy reductions, the larger promise comes from an integrated system in which smart products are in regular conversation with dynamic utilities and a smart energy grid. For instance, a home system could inform a utility company that there has been no activity in the home for a while, and that the water heater can be turned off without the occupant knowing or caring.

“It’s not about making sure your toaster is unplugged when you’re at work,” said Supalla. “There are a lot more systematic, infrastructure level opportunities that come from getting better data about how the system is working, and being able to use that to improve efficiency.”

When given the choice between reducing energy use and a more comfortable, convenient lifestyle, consumers generally opt for comfort and convenience. But there are signs such behavior is changing. And the Internet of Things may help bridge the gap between convenience and responsibility.

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